Let’s begin with a question. Which of the following rose in cost the most over the past thirty years: housing, medical care, or higher education? The correct answer is higher education. (1) Over this period, housing went up 375%, medical care 600%, and higher education an astonishing 1,120%. (2) At the same time, financial aid provided by the federal government and institutions of higher education also shot up but so did “net cost,” that is, what students and their families must pay after grants, scholarships, and tax credits are subtracted. (3)
The rise in net cost also explains the student loan debt picture. Institutions of higher education enroll more than twenty million students a year and two thirds of them supplement financial aid with loans from Uncle Sam or banks. Student loan debt now hovers around $1 trillion and the average student leaves college with a loan debt of $27,000. Among bachelor degree recipients, borrowers in a recent year included 62% at public institutions (such as Youngstown State University), 72% at private non-profit institutions (such as Hiram College), and 96% at private for-profit institutions (such as the University of Phoenix). Today there are 37,000,000 student loan borrowers with outstanding student loan debt. The average debt balance for all borrowers from all types of schools is over $24,000. Moreover, the delinquency and default rates are very high (4) but borrowers can find no relief in bankruptcy because the U.S. bankruptcy code exempts nearly all cases of student loan debt from discharge. (5)
75% of the college students in the U.S. attend public institutions, so let’s focus on them. A major reason that cost has skyrocketed in the public sector is the steady decline in state support. In Ohio, for instance, state support has dropped from more than 70% of the operating costs of the public universities in 1970 to less than 20% today. In this regard, Ohio is a microcosm of the nation. All states have reduced spending in higher education to cover other mushrooming costs, especially Medicaid and prisons. On a national basis, state support per student at public universities, adjusted for inflation, dropped from $8,500 in 1987 to $5,900 in 2013. (6)
Understandably, public institutions across the nation have turned to tuition increases to compensate for declining state support. Consider these facts:
- In 1987 tuition provided 23% of the revenue of public institutions; today it provides 47% - nearly half;
- From 2008 to 2012, as state support per student shrunk 27%, average tuition rose 20%; and
- In the year 2000, the average family spent 25% of its income to cover the cost of college for a family member; today it spends 40%.
Two obvious questions remain: “Is college worth it?” and “What can we do to contain the cost of college?” I’ll address these in my next commentary.
- This commentary draws information from many sources, including the following: Davis Educational Foundation, “An Inquiry into the Rising Cost of Higher Education: Summary of Responses from Seventy College and University Presidents,” 2012; Helen Li, “The Rising Cost of Higher Education: A Supply and Demand Analysis,” Bachelor Thesis, New York University, 2013; William Trombley, “The Rising Price of Higher Education: College Affordability in Jeopardy,” 2003; Allie Bidwell, “The Rise in Tuition Is Slowing, But College Still Costs More,” U.S. News & World Report, online edition, October 24, 2013; Beckie Supiano, “Evaluating the Payoff of a College Degree,” The Chronicle of Higher Education, February 24, 2014; Pew Research, Social & Demographic Trends, “The Rising Cost of Not Going to College,” February 11, 2014; and American Student Assistance (www.asa.org/policy/resources/stats).
- Over the past decade, college tuition has risen three times as fast as the CPI (Consumer Price Index) and twice as fast as medical care.
- See Allie Bidwell, “The Rise in Tuition is Slowing, But College Still Costs More,” October 24, 2013, US News & World Report online. The actual average in-state tuition at four-year public institutions in 2012-2013 was $8,893 while the average net cost of tuition was $3,120, and the actual average tuition at four-year private institutions in 2012-2013 was $30,090 while the average net cost of tuition was $12,460. The federal government currently spends about $40 billion a year for Pell Grants. One estimate is that financial aid has gone up since 1970 fifty-fold.
- For instance, among students from for-profit institutions and public two-year institutions, the delinquency and default rate is about 50%.
- See Kayla Webley, “Why You Can’t Discharge Student Loans in Bankruptcy,” Time, February 9, 2012.
- State support in actual dollars has gone up typically in the states annually in recent decades but support measured by percentage of operating costs and in real dollars per student, however, has declined sharply. Real dollars are dollars adjusted for inflation. A slight exaggeration by one public university president summarizes the national subsidy trend nicely. He said, “When I came here, my school was state-supported, then it was state-assisted, and now it’s state-located.”